Brazil’s plan to slash bank spreads

The Brazilian benchmark interest rate—known as Selic—has never been so low as it is today. However, any benefits from this move have yet to reach final consumers. As a way of tackling this, Brazil’s Central Bank has been implementing measures to increase competition but recent developments show that facing the problem requires a more comprehensive approach.  

First and foremost, Central Bank President Roberto Campos Neto and his team are gambling on more competition to reduce bank spreads, building on the work of his predecessor Ilan Goldfajn. Currently, the country’s top five banks control 82 percent of the domestic market in Brazil. In developed economies, only in the Netherlands is the banking system more concentrated (89 percent).

Economist Cleveland Prates, a former counselor at Brazil’s antitrust watchdog Cade explains that many factors impact spreads, such as lower demand for credit and cuts to the Selic rate. However, in his view, “the real problem is the lack of competition and strategies adopted to neutralize new players.” 

In a recent interview, João Manoel Pinho de Mello, the Central Bank’s director of Financial System Organization and Resolution said open banking regulations, set to be implemented in Brazil in 2020, might shatter the grip the top players have...